Tuesday, September 14, 2021

Armenia raises rate 5th time but signals it may pause

      Armenia's central bank raised its key interest rate for the fifth time but signaled it may now take a pause, saying the tightening of monetary conditions had helped curb forward-looking demand and inflation, and thus improved its chances of meeting its medium-term inflation target.
     The Central Bank of Armenia (CBA) added the risk of inflation deviating from medium-term trend was now balanced but cautioned the economic outlook remains uncertain and it is ready to respond in an adequate matter to ensure its goal of price stability is met.
     CBA raised its refinancing rate by another 25 basis points to 7.25 percent and has now raised its 3.0 percentage points since December 2020 - including 2.0 percentage points this year - when it began tightening its policy stance in response to rising inflationary pressures.
     The central bank forecast inflation will remain high until then end of this year but then approach its 4.0 percent target in 2022 and stabilize in the medium term.
     Inflation in Armenia - sandwiched between Turkey, Iran, Azerbaijan and Georgia - has risen since November last year and hit 8.8 percent in August, the highest in 8 years, up from 4.5 percent in January.
     Today's rate hike comes as little surprise as CBA in August said it would consider tightening further to neutralize the risk of accelerating inflation expectations.
     However, CBA said today the rise in inflation in recent months was mainly due to a rise in seasonal food prices while normal inflation had been lower than expected.
     On the other hand, the central bank's board said it considered it expedient to raise the rate today as the international environment remains inflationary and despite the outbreaks of new COVID-19 cases in many countries, economic activity and demand continues to growth faster than expected.
     Armenia's economy grew 13.1 percent year-on-year in the second quarter, up from a contraction of 3.3 percent in the first quarter, and CBA said current economic activity is more positive than it expected.
     Overall demand is growing at a slightly faster-than-expected pace, support by rising growth in consumption and higher-than-expected remittances, positive external demand while private investment growth still remains subdued.


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